Open access models, such as this one, that assume a steady wholesale revenue stream from competing retail providers have failed. UTOPIA and Provo in Utah and Grant County in Washington are just three examples. On an FTTH system, Internet bandwidth is a commodity and competitive pressure squeezes margins to the breaking point.

It would be also foolish to expect AT&T or Comcast to buy wholesale capacity. Both companies will use every competitive tactic at their disposal to try to prevent the venture from succeeding. As CTC’s Lee Afflerbach, a true veteran of this industry, succinctly put it, “they are very proficient at changing their rates and such. Predatory is the word, I think…it’s sorta like infinity versus zero. Your odds aren’t very good on that”.

But then there are the weasel words I used: typical Californian community. A leafy town in the urban heart of Silicon Valley that eschews sidewalks and commerce, averages one acre lots and often ranks as the most expensive zip code in the U.S. is not typical. It has more in common with high end gated communities than it does with neighboring cities. Twelve percent of residents work from home, and that’s not counting the ones – like, most of the remaining 88% – who have business addresses elsewhere but work where ever they happen to be, including, and particularly, at home.

At this point, Atherton Fiber is a small, boutique business that could easily be kept afloat by the enlightened self interest of a handful of well heeled patrons, not to mention a customer base that’s not as price sensitive as most. There’s good reason to believe it can succeed because Atherton Fiber is living in Atherton, and that’s not the real world.

The final, and truly interesting, question – whether the business model can be transplanted to the real world – will have to wait until later.

A deeper dive into the Atherton Fiber business model raises questions about its sustainability, given the assumptions that appear to have gone into it. The proposed fiber-to-the-home project would pass all 2,500 residences in Atherton. It seems there are no brick and mortar business customers there – the whole town is residential. Yes, it’s that exclusive.

The first red flag is an assumed take rate of 70% within four years. In a typical Californian community that assumption would be delusional. Full city fiber-to-the-premise builds that go up against two big, full service incumbents struggle to reach 30%. The Santa Cruz FTTP project is benchmarking a 35% take rate, but that includes an independent private partner that already has a 15% market share. The City of Alameda’s overbuild cable system reached 30% at its peak, before Comcast bought out the incumbent cable company, turned up the competitive heat and forced a fire sale at 50 cents on the dollar. Provo, which sold its system to Google for virtually nothing, never even got that far.

The second cause for concern is that, as it stands, it would be an incomplete system that relies on third parties to finish construction and sign up subscribers. The basic business model that Atherton Fiber filed with the California Public Utilities Commission doesn’t include the cost of connecting most homes to the fiber out on the street or installing any customer premise equipment. There might be room in the budget to pay for minimal electronics at the central fiber hut, but not much. Atherton Fiber’s assumptions include a $900 connection cost, partially offset by a $300 installation charge, but neither figure is rolled into the model. It seems that paying those costs and charging those fees is the responsibility of third party ISPs (including, apparently, an affiliated in-house provider that’s not on the books yet) which would pay an average of $40 per month per subscriber on a wholesale basis. The retail cost to the customer would, of course, be more than that.

To finance the project, Atherton Fiber plans to raise approximately $3 million via a traditional investment mechanism and other interested Atherton residents. The remaining funds would be raised by selling interested property owners a “set” of bundled fibers to their home that they would own directly.

At this point, Skymoon Ventures Management Company owns 90% of Atherton Fiber, with the other 10% held by newly hired CEO Robert Hayes. It’s applied for a certificate of public convenience and necessity from the CPUC, asking for expedited permission to operate as a telephone company. The application included a bank statement showing $400,000 still on deposit, at least as of February, and a fiber construction plan by a Pleasanton engineering company, that might account for most of the rest of the original investment.

Total capital cost of the project is estimated at $4.8 million, but that doesn’t include most of the connections from the fiber in the street to subscribers’ homes. Plans call for it to reach all 2,500 homes in Atherton by of the end of next year and use a mixed business model that involves selling – technically, leasing – dark fiber directly to residents in order to raise capital, as well as offering them ongoing retail Internet service and providing wholesale connections to other ISPs.